EBay's Former Rival In Japanese Market Now Its Best Friend

EBay couldn't say goodbye to Japan, the world's second-largest retail market after the U.S.

The San Jose, Calif.-based auction leader bid sayonara to Japan in 2002, after its online auctions failed to catch on with local consumers.

But EBay (NasdaqGS:EBAY - News) did an about-face Tuesday, saying it's teaming up with Yahoo Japan to create an auction service that makes it easier for U.S. and Japanese consumers to buy and sell items from each other.

Yahoo Japan is a unit of Sunnyvale, Calif.-based Yahoo (NasdaqGS:YHOO - News).

Yahoo Japan says that by March, Japanese will be able to bid for items put up for sale on eBay by Americans. By midyear, a similar site will let U.S. consumers buy Yahoo Japan auction items.

Analysts say the deal aims at U.S. consumer demand for hip products like Japanese animation films and "manga" comic books. Japanese consumers, for their part, are keen on buying fashionable and hard-to-get items from U.S. sellers.

Yahoo says the online auction market in Japan overall is up 27% for the first nine months of the year from the year-earlier period.

"Japan's definitely an attractive market for eBay," said Tim Boyd, an analyst with American Technology Research. "It's not the growth story of a China or Latin America, but there's a substantial amount of merchandise volume flowing through the Japanese economy that eBay can tap." Boyd says eBay's auctions will benefit from the large number of transactions that Japanese make through cell phones and other handheld devices.

The pairing is notable, since it was Yahoo's dominance of Japan's e-commerce market that forced eBay to withdraw from the country five years ago. At the time, eBay had only 25,000 items listed for sale on its Japanese site, compared with the millions of auction listings it boasts in the U.S. and Europe.

The tie-up in Japan with Yahoo also shows that eBay no longer seeks a go-it-alone strategy in Asia. EBay has made inroads in Europe, but it was forced this year to partner in China with local company Tom Online, after its own site failed.

The venture in Japan isn't the first time the two online rivals have gotten together. In May 2006, they unveiled a venture for Yahoo to sell and place ads on eBay Web sites.

Piper Jaffray analyst Aaron Kessler says the new venture in Japan will help eBay, but he doesn't expect it to make a big difference in the bottom line.

"Cross-border trade isn't a game changer for eBay," said Kessler. More revenue is generated from "intra-country activity" in big markets such as Germany, he says.

EBay Chief Executive Meg Whitman says her company is counting on Yahoo's skill in putting up Japan-style auction sites.

Japanese auction and e-tail sites use Japanese characters and have layouts that differ from U.S. sites. Yahoo is expected to help eBay get around such cultural and linguistic pitfalls.

Yahoo Japan is 40% owned by Softbank, the company controlled by Japanese tycoon Masayoshi Son. Yahoo Japan controls over half of the online auction market in Japan. The rest is taken up by local Japanese players such as Rakuten.

EBay and Yahoo Japan also said Tuesday that they have launched a separate Web site called Sekaimon, or "Gateway to the World." The site translates items listed on eBay's Web site into Japanese. It also helps with payments, shipping and customs clearances for Japanese buyers. The two will share revenue, but exact terms weren't disclosed.